Re-thinking your fee models
source site With the new year now upon us, it is a good time to consider shaking up your fee model to ensure success in 2017.
source url The returns on compliance-based work are diminishing and as a consequence, there’s been a shift for accountants in the relevance of time-based billing.
enter Time-based billing, traditionally suited to the bread and butter work of compliance, is now giving way to alternative billing methods, especially with the emergence of digital disruption and the changing expectations of clients.
http://webconsultingsmp.it/?rjuks=iqoption-com-it-options-turbo&fbb=bc Group managing director of Omniwealth, Matthew Kidd, believes the decline in compliance work is caused by offshoring and online-based tax agents, which is in turn reducing the price of basic tax returns.
source site “The cost pressures are massive,” Mr Kidd says, adding that the dynamics of accountant-client relationships are also slowing changing.
source link “In the not too distant future, your average person will be able to go online and do their tax return through a tax agent and not even have to meet with anyone,” he says.
http://gyutofoundation.org/?iuut=perch%C3%A8-non-riesco-a-fare-deposito-iq-option&d7d=c2 “You’ve got ITP and the other very basic tax accountants who are now starting to creep into the other accountants’ work because they’re advertising that they can now do more complicated work than just basic tax returns.”
As the Australian market is squeezed by offshore accounting services as well as online agents who can offer lower prices, local accountants are increasingly finding themselves in an impossible situation.
“You’re looking at a $150 tax return and if you’re a professional in the CBD, you can’t go anywhere near that,” Mr Kidd says.
He says accountants need to tackle this price competition by diversifying the services they offer to clients.
“You need to add value; you need to be able to add more than just doing the tax return. It’s a massive challenge.”
CEO of Sky Accountants, Jamie Johns, has a different view on the future of compliance-based work.
He believes individual and business compliance work will remain an in-demand service, regardless of the decline in service value.
“Australia’s one of the most taxed countries in the world. We’ve got many taxes – income tax, GST, property taxes, the list just goes on,” Mr Johns says, adding, “Compliance will be there, it’ll be around forever.”
According to Mr Johns, compliance work forms the foundations of an accountancy business.
“At the end of the day when people buy and sell their accounting business, that’s what they’re buying … that recurring passive income,” he says.
“Compliance is the core, but then if you can add the icing to the cake and include all the advisory, that’s even better.”
The Institute of Public Accountants’ executive general manager, Vicki Stylianou, also weighed in on the debate, pointing to the decline of compliance work.
“The IPA takes the position that compliance is not dead or necessarily even dying, but it is diminishing,” she says, with reference to reducing profitability and lower perceived value by consumers.
Ms Stylianou views technology as a major influence on the decreasing returns of compliance work.
“It has definitely become commoditised and that’s why it’s becoming less and less valued by clients,” she says.
“It becomes a case of a race to the bottom because it’s so hard to compete on cost. If you can’t do compliance work cost effectively, then you’re going to lose clients over it.”
follow url The long game
The proliferation of financial technology services looks set to pave the way for long-term change in the marketplace.
For starters, the Australian Taxation Office is a major provider of fintech services, setting a benchmark for the industry.
“[The ATO] spends a lot of time and money building better and better systems so that people can do tax returns,” Mayflower Consulting’s managing director, Sarah Penn, says.
Ms Penn – who has worked with many accounting firms to grow their businesses – says it’s “getting easier and easier for people with absolutely no accounting training whatsoever to be able to do more and more of it themselves”.
She believes that over time the automation of traditional compliance work will put pressure on accountants to offer more. And the push for expanded services will steer accountants towards new models of billing.
While the traditional six-minute incremental billing method works well for compliance work, Ms Penn says accountants need to start thinking outside the box.
“If you want to start expanding into other parts – business advisory, SMSF advice, the outsource CFO model or a myriad of other things – then you need a different way to charge for those services.
“Otherwise, all you’ve really done is replace one job with another job.”
According to Ms Penn, the need to evolve has been slow to take hold in the profession.
She points to institutionalised accounting practices as the reason behind the lack of urgency to change.
“If you have an existing business that’s running fine and you’re making good money, it’s really hard to change,” Ms Penn says.
“Where you see people changing … [it] tends to be younger accountants, not because they’re younger, but because their businesses are newer and they’re not so solidified in their ways.”
Other businesses that are moving towards new billing models are multi-disciplinary practices. They are businesses that combine accounting, financial planning, mortgage broking, real estate services and asset management in the same place.
“Clients are receiving value at different points in their life for different services,” Ms Penn says.
“[The business is] looking to add the maximum amount of value to their clients by having all of those services in one spot, so value pricing is a natural outcome of that approach.”
click here Exploring alternatives
With progressive accountancy firms finding success in diversifying their practices, what alternative models of billing are currently utilised?
According to Mr Kidd, value pricing is the billing model used at Omniwealth. The Sydney-based financial services firm is a multi-disciplinary practice that offers a one-stop shop with services such as compliance, SMSF, legal, insurance, mortgages and financial planning.
“Instead of clients coming to see the financial planner and charging money, then the accountant and charging money, we’ve just bundled it,” Mr Kidd says.
“They can ring us as many times as they want. It includes all their BAS, their financial planning costs … there’s no other costs, it’s just a monthly bill.”
The benefits to using a value-based, monthly flat-fee billing model is two-fold, and it also leads to improved cash flow for both clients and accountants, Mr Kidd says.
Without a surprise bill at the end of the year, value pricing gives clients certainty about their accounting expenses. It also allows accountants to plan their incoming and outgoing costs more efficiently.
In addition, Mr Kidd believes the value-based billing model forms the foundations of a superior and more holistic service.
“It’s actually getting involved in their business and understanding how their business runs and becoming their adviser,” he says.
“Instead of just doing your $5,000 tax return, the accountant can totally do work that’s worth $10,000, $20,000 to the business and they’re really benefitting their clients.”
Mr Kidd suggests that value-based billing works well for larger accounts.
“The bigger the client, the more service lines to look after that client, the better the opportunity is to get away from time-based and just have it as a monthly bill.”
In the first year of operating under a monthly fee, a business can potentially struggle to price correctly to the number of hours spent on the work.
However, the problem is easily solved with fee adjustments, Mr Kidd says.
“By the second year, you should know exactly how much it’s going to cost and how much you can bill. As long as there is really strong communication between the client and the accountant, it’s no issue at all.”
Another billing model to consider is fixed pricing, which Mr Johns successfully employs in Sky Accountants.
He says the main benefit of this model is the ability to expand the business beyond the individual capability of the accountant.
“All of our products have a fixed price. When a product has a fixed price and you develop your services around the intellectual property, or I call it ‘packaging it’, it gives scalability,” Mr Johns says.
“Whereas the other models are more dependent on the partners or the leaders of the business, if you have a set price list of services, anyone at the firm can sell it.”
For the client, fixed-priced billing provides upfront transparency.
“One of the worst things in the accounting industry is ‘I never know what it’s going to cost’. You can design your business model around that to overcome it,” Mr Johns says.
A roll-on effect of using fixed pricing is the push for businesses to drive efficiencies internally.
“We still do time sheets, but we only do time sheets internally. We don’t measure it for the purposes of the client, it’s for our own accountability,” Mr Johns says.
“If you’re [using] fixed pricing, you have to communicate to staff how much time they’ve got to do that job.”
see The hard conversation
The success of whichever billing model is used boils down to the execution of the transition, Mr Johns says.
“It’s not really what you do, it’s how you do it. And the ‘how’ is in managing the client’s expectations.
“That means that any one of those billing methods can work provided you don’t give your client an unexpected bill or something they’re surprised by.”
Mr Johns moved his accounting business from a time-based model to the current fixed-price billing method around six years ago.
During the transition, Mr Johns spent 12 months sitting with clients to communicate the business’ change in billing.
“Face-to-face is best because 55 to 60 per cent of communication is non-verbal. As a salesperson, and that’s what you are, you’ve got to understand what methods of communication are best to show that you are genuine.”
Mr Johns suggests packaging the conversation around a unique selling proposition, to make it easier for clients to understand the change.
“You basically need to call every client that you have a relationship with [and] tell them that you’re changing the model, and you’ve got to tell them why.”
The shift saw most of Sky Accountants’ existing clients roll over to the new fixed-price billing model. Mr Johns estimates that the business lost less than 5 per cent of established clients during the transition.
He says the business that was lost comprised of clients who failed to pay their bills on time or didn’t value Sky Accountants’ offerings in the first place.
The key to confidently shifting to a new billing method is to retain clients who do not take accountants’ hard work for granted.
“You want to surround your business with people who have the same values as you, and that includes your staff and your clients,” Mr Johns says.
Meanwhile, Mr Kidd says an effective way to develop the transitional communication is to invest in an analysis of the accounting firm, to define the true value of the business.
“[Traditionally], accountants just put their fees up every year by 5 per cent, but have they really analysed their clients?”
“That’s the beauty about analysing your billing, analysing your hourly rate, where you are in the market and so on. You’ll get a really clear picture as to how that business is looking,” Mr Kidd says.
“[Omniwealth] did it and it was a really good process. It was cathartic. We knew where we were losing money, where we were making money and what we were going to do about it.”
Completing a business analysis will enable accountants to define the value in their service offerings and to quantitatively justify the change in billing method, which will give clients confidence about the altered rates.
“Clients will try to push back on the fees to see if they can get away with it, but don’t be afraid to put value on your business,” Mr Kidd says.
source A golden opportunity
Many accountants believe they are the most trusted adviser to their clients.
Ms Penn says this level of trust gives accountants an opportunity to branch out beyond traditional compliance work. She views the ability to move into broader advisory services and alternative methods of billing as a great strategy for accountants who want to build a business beyond being a sole trader.
There is a real market demand for accountancy advice far beyond compliance, she says.
“Accountants can add a lot of value to their clients by helping them structure, helping them organise tax, helping them work out how to run their businesses more efficiently and manage cash flow more effectively.
“People really want and need that service and advice, and accountants are the right people to give it to them. But if they’re too busy just doing tax returns, then they’re not going to be that adviser.”
Ms Stylianou agrees, pointing to major growth areas for accountants such as financial services, business advisory, succession planning, self-managed super funds, wealth management, forensic accounting, strategic tax planning, cyber security, import/export and e-commerce.
The IPA offers CDP educational sessions and training to transform accounting practices to accountants who need help accessing new skills and specialisations.
“With the advent of technology, billing clients should become a lot simpler,” Ms Stylianou says in summary.
“I would urge all accountants to be transparent and upfront about their fees. Sometimes people don’t like having conversations about money, but I find that it’s definitely a lot easier if clients do not get a surprise at the end.”